A property manager may spend quite a large amount of money advertising to fill vacancies in a building. Once the tenants are in, everything within reason is done to keep them happy and paying the rent. It is difficult when one of these tenants is enticed to move to another location.

Leases can stretch the length of time a tenant will stay with you. Six-month, nine-month and one-year leases are common in apartments, much longer in commercial buildings.

The Anti-Raid Clause In A Commercial Lease

An anti-raid clause in a commercial lease can make a tenant think twice about vacating the space occupied in a building to move to another building. When such a clause is in the lease, the landlord can treat the move of the tenant as a breach of the contract and cause all of the rent due under the lease to become immediately due and payable.

The landlord may want this clause and any lease where the presence of that tenant in the building is deemed to be important to the success of the building. If the building is devoted to a certain type of business and the tenant is a leader in the field, the landlord might expect raids from rival building owners who might also have buildings devoted to that kind of tenants.

The anti-raid clause gives the landlord the right to an injunction prohibiting the tenant from moving from the leased space. However, there is no record of a court ever having enforced such a provision.

Any building owner is entitled to run his business in his own self-interest. Therefore, another building owner whose tenant is being 'raided' cannot recover damages against the raiding building owner for inducing a breach of lease. This rule can change if the raiding owner makes false claims such as that the tenant's present quarters are located in a building that is in dangerous condition or is slated for condemnation or demolition.

What Makes Apartment Tenants Happy

When landlords, architects and builders design apartments, none of them have lived in an apartment for years. They assume they know what tenants want.

Apartment living is a lifestyle decision for many tenants. One landlord, together with his management company polled tenants in a survey. They were surprised by the results.

They found that apartment tenants would rather have more car wash areas, longer pool hours, and a bigger club or recreation room on the premises instead of lower rent. The survey found that tenants preferred that the landlord provide more and better amenities rather than making any changes in the rental arrangements.

What They Really Want

Before the survey the landlord and management firm expected to see that tenants would be concerned with rent levels, money rather than amenities. Rent levels were well down on the list.

In addition to the three most frequently mentioned amenities (car wash, pool hours, and rec room)--which the manager noted are the easiest for a landlord to give tenants--tenants also said they would appreciate having designated parking spaces, a barbecue or picnic area, tenant gardening, and permission to hold yard sales.

Single Tenant Properties - Not For All Investors

Around 25% to 35% of the value of commercial properties are single-tenant properties (STPs). This large percentage means that institutional investors such as pension funds, as well as smaller investment groups must consider this type of investment. There are many uses ranging from office to industrial to retail. They can include office buildings, warehouses, department stores, supermarkets and other retail use. There are advantages and disadvantages in this type of ownership compared to multi-tenant properties. Types of STPs 1) Corporate sale-leasebacks. Most of the STP properties are corporate properties that have been sold to third parties and simultaneously leased back by the corporate seller, often for a long term. The usual reason for the seller was to raise additional cash. 2) Build to Suite- Build to suit (BTS) generally refers to office, industrial, or warehouse facilities constructed for a single user and designed specifically for its particular needs. In an over-supplied market, BTS eliminates the rent-up risk for developers. The completed building is either held by the developer or is sold to a third party who simultaneously enters into a long-term lease with the user. 3) Existing STPs. The third form includes multi-tenant buildings that ultimately are occupied by a single tenant that expands space plus the two preceding types that are leased to third parties after the original user vacates. Since all in this group are "second generation" tenants, buildings in this category are often older than other STPs. Convertibility To Other Use The major consideration to an investor is whether the building can be converted to related uses at a low cost. This rules out special use properties such as refineries or manufacturing facilities. It may also rule out some corporate headquarters or institutional office buildings, constructed to meet business objectives of the original user. Often these were built without regard to capital outlays or ease of maintenance. Warehouse and distribution facilities might be easily subdivided provided that the original design did not include a central access. They can be obsolete quickly if transportation patterns change. Retail properties may require considerable alteration to create suitable individual stores. Service and customer access must be available for each unit. Parking may not be adequate with a larger number of tenants. Advantages Of STPs The major advantage of the STP is the absence of any short-term re-leasing risk plus a known cash flow for the term of a long lease. Another consideration is the minimal management requirement on the investor since the properties are usually leased under net leases. Risks Of STPs The obvious risk is when a tenant does not renew the lease or the business fails. The vacancy rate immediately jumps to 100%. Time to find a new tenant or to renovate the property can be very costly. >A STP may not be any riskier than a multi-tenant building, providing the lease is long and the tenant is a high quality company. Risks can be minimized by requiring tenants to have high credit ratings and by providing in the lease that rental payments must continue under all circumstances except possible destruction or condemnation of the building (in which case, insurance proceeds or the condemnation award should reimburse the owner's capital investment.) >A STP that fits all of the qualifications for a good investment can be worthwhile acquisition for the institutional or individual investor.

Property Turn-Arounds For Profit

In any market, good or bad, there are always problem properties (to someone). Most are only troubled or problem properties because of the current ownership. Some may be neglected only because the present owner has failed to do fairly simple things that can solve the problems. Buying property and solving problems is a profit-making business. The number one requirement is location, as it always is in real estate. Even if you spend a great deal of money refurbishing a structure in a questionable location, it will always be in that bad location. The successful turn-around property is a property that can be improved to attract more tenants at higher rents, a building that can be changed to another use, or a building that can be torn down and successfully rebuilt to a better use. Here are some of the signs on the property that will lead the an investor to further investigation: >Run down (uncared for) landscaping. >Partially vacant rentals. >Collection problems of rents. >Rental units in poor condition. >Obvious mismanagement of property. How to follow up on such a find. (We presume the property is on the market.) Start with the neighborhood. Check rent levels in buildings like the target property (in condition like it will be after a makeover). Make a list of the needed repairs that your property will need and get bids. Add a generous percentage to the resulting figures since bids are usually low. Interview current tenants. See if any will stay, particularly if the property is improved. Check the existing rental agreements or leases. Make sure that current tenants are paying amounts in the agreements. Plan to create amenities that make the property a better place to live or work. Older apartment units, the usual target for a turn-around, need to be upgraded to stay competitive. Modernize, installing dishwashers, microwave ovens, disposals, and new and more electrical service. Today's tenants have so many electrically powered gadgets, i.e. computers, TV's, hair dryers etc. that even in small units you should consider supplying 100 amps of power and in larger units 200 amps. What Are The Risks? Knowledgeable property developers and managers (especially those familiar with empty or near-empty office, hotel, and apartment buildings) caution that buying troubled property requires taking a risk. The profits can come from any one or a combination of circumstances. >A market turnaround caused by a boom in the local and/or national economy. >An improved system for promoting and operating the property. Some syndicates are being formed solely to manage the troubled property with an option to buy when and if it hits a specified profit level. >Purchase of the property at a bargain price, often combined with imaginative and untraditional financing techniques. Some lenders are asked to share the financial risks by accepting a low initial interest rate in return for a big share of the profits later on. Sometimes the seller of the troubled property is asked to retain a financial stake in the property and to help turn it around. The seller's experience and involvement in the project from the start can be valuable. >Including the troubled property in a larger development plan. An office building that sits empty might become part of a new industrial park with hotels, conference facilities, and residential apartments, all of which are successful. Take another look at troubled properties in your area. With fresh new ideas and a re-structuring of the mortgages, the troubles may go away, leaving a profitable investment for you. What is the upside in a turn-around project? It is in the form of increased rents, lower vacancy rates, happier tenants, and a project you can sell easily because most buyers of investment property want to have "Pride of Ownership" investments.